The Senate confirmed IRS Commissioner Daniel Werfel about seven months after the agency received a massive infusion of funding from President Biden’s Inflation Reduction Act. Tasked with stewarding the IRS through a historic modernization effort, he embraced the challenge.
“This is an extremely rewarding and challenging job, and it has tested my leadership skills, abilities, instincts, and understandings in ways that were hard to envision when I got here,” Werfel said in a November interview with Tax Notes at IRS headquarters in Washington.
On December 4, President-elect Trump said he intends to nominate former Missouri lawmaker Billy Long to helm the IRS. If Long is confirmed by the Senate, Werfel would become the first commissioner in nearly two decades to leave the post before expiration of the term.
Werfel’s legacy at the IRS includes implementation of Direct File, the agency’s online tool for certain taxpayers to file returns for free. Werfel also turned the agency’s focus to tax collection from wealthy individuals and complex businesses. Overall, his tenure featured attempts to modernize IRS systems and make efforts toward digital service, security, and access.
His endeavors brought detractors. Nineteen Republican senators objected to Werfel’s work on Direct File, writing that the project “was not authorized by Congress and is a massive and ill-advised expansion of the power of the IRS” and citing “serious legal questions” surrounding the launch of the pilot. Republicans also criticized Werfel over treatment of two IRS Criminal Investigation division special agents looking into Biden’s son Hunter’s tax compliance.
Amid the presidential transfer of power, Werfel said he’s choosing not to dwell on uncertainty.
Before Trump’s announcement about replacing him, Werfel said, “There’s a lot more work to be done, and given that I signed up to be as helpful as I can for five years, my hope and my frame of reference is, if I started to think that wasn’t the case, I want to make sure that none of those thoughts would ever impede my judgment on what the right things and the right changes to make, long- and short-term.”
President Obama had appointed Werfel as acting commissioner in 2013, a turbulent time for the agency, as it sought to recover from the Tea Party scandal. Earlier Werfel spent nine years working in Boston Consulting Group’s public sector practice and 15 years in the Office of Management and Budget.
When Biden nominated Werfel in 2022 to serve until 2027, he cited Werfel’s ability to bring “immediate stability” to the IRS after the accusations of agency mismanagement as a reason for choosing him to help usher in an extensive modernization agenda.
Werfel’s connection to that controversy, resulting from the IRS’s admission that it had given extra scrutiny to applications from Tea Party-affiliated and other groups applying for tax-exempt status, also gave some fuel to detractors during his nomination process.
Following his confirmation in 2023, an immediate test facing the newly appointed commissioner was climbing out of a service hole that stemmed from the COVID-19 pandemic and years of underfunding, with a focus on getting back to historic levels of performance.
“I’m very proud of the fact that the team, once we had the resources, rebounded so quickly,” Werfel said. “We infused new hires into the space, started working that paper backlog strategically and effectively, got new phone assisters up on those phone lines.”
One unintended consequence of that backlog affected a cafeteria in the IRS’s processing center in Austin, Texas, which ended up filled with boxes of paper during the pandemic instead of employees on their lunch break.
Werfel, speaking at an event this summer to a crowd of IRS employees, celebrated the room’s shift away from a document storage space back to a cafeteria. “Just as we’ve cleaned up the Austin cafeteria and gotten it back to functioning as intended, we’ve also been cleaning up the tax administration problems left by years of underfunding,” he said.
Darren Guillot of Alliantgroup LP, a longtime IRS employee who left the agency in late 2023, said overcoming the backlog was a “huge win” for the IRS.
“If the commissioner and the IRS are on this trip around the world, I’d say their balloon is halfway across the globe, which is pretty remarkable given everything they have to do,” Guillot said.
The IRS is nearly at the end of year 2 in its 10-year window to spend funding from the IRA, which initially totaled $80 billion but has since been reduced by Congress to nearly $60 billion. The agency has been focusing on upgrading aging technology, hiring and retaining more employees, and improving customer service.
In its year 1 strategic operating plan update, released in May, the IRS highlighted a spike in phone calls answered, reduced call wait times, added features to digital accounts for taxpayers, and an enforcement milestone that has reached $1 billion collected from a group of high-wealth taxpayers with outstanding tax debts. The IRS is also using new funding to open audits of some of the largest and most complex business taxpayers in the country and to take a closer look at the personal use of business aircrafts — initiatives that will take longer to yield substantial results.
Modernization has also come in the form of acknowledging shortcomings, according to Werfel.
The IRS has been testing changes to its audit algorithms for the earned income tax credit following a 2023 Stanford University study that found Black taxpayers claiming the credit were between 2.9 percent and 4.4 percent more likely to be audited than non-Black claimants, and the agency expects to see results from the modifications by the end of 2024, Werfel said.
“The first thing I wanted to do was basically not be defensive on this,” Werfel said of the report’s findings, emphasizing that the IRS doesn’t and never has collected race data but that its audit practices were having a disparate impact.
The Stanford report has also led the IRS to look for disparities in other areas of tax administration, Werfel said, with that research agenda buoyed by IRA funds.
Times of Transition
Of the money rescinded so far by Congress, most of it was from the funds supporting those enforcement initiatives. Werfel said it’s too early to see the impact from those cutbacks, but that the biggest effect has been uncertainty, which has grown following Trump’s victory in November and a Republican takeover of both chambers.
Werfel, calling the IRS “iconically unpopular,” said it should be nonpartisan to want to improve taxpayers’ interactions with the nation’s revenue collector, even if tax obligations are often viewed negatively by the public.
“It doesn’t mean that we shouldn’t create in what can be a stressful situation, the least stressful version of that situation,” Werfel said.
Guillot, who was deputy commissioner of collection and operations support in the IRS Small Business/Self-Employed Division in 2023, said Werfel showed a talent for “walking in the taxpayer’s shoes” while the agency was gearing up to restart collection notices after a two-year pause during the pandemic.
Guillot recalled how the commissioner initially took issue with the first letter that was planned to go out because it didn’t acknowledge the lapse in communication.
